EURGBP seems to be completing its latest forex correction, as the pair is finding resistance at the 38.2% Fibonacci retracement level on the 4-hour chart. This is also in line with the descending trend line connecting the recent price highs so far this year.
If resistance around the .7250 minor psychological level holds, the forex correction wave could be over and price could fall back to the previous lows near the .7000 major psychological support. A higher forex correction could still last until the 61.8% Fibonacci retracement level near the .7400 major psychological mark.
Forex Correction Levels
An increase in selling pressure could lead to the formation of new lows below the .7000 mark, possibly until the .6700-.6800 area. Stochastic is moving down from the overbought area, indicating a pickup in selling pressure. In addition, a bearish divergence can be seen since price made higher highs while stochastic drew lower highs.
A weak selloff might find support at the .7000 handle, from which EURGBP could make a bounce. Volatility and trends could be subdued this week, as it is the end of the month and the quarter. Profit-taking could lead to quick trend reversals and larger forex correction moves.
The path of least resistance is still to the downside, as the ECB is running its quantitative easing program, which might last for at least 18 months. Meanwhile, the BOE has emphasized that its next move is still likely to be a rate hike although their hawkishness was weaker in their latest policy minutes.
There are no event risks for this forex correction setup this week, except perhaps the UK retail sales release later on in the week. Bear in mind that Governor Carney usually mentions that the downturn in inflation would translate to stronger spending and the upcoming retail sales release might provide support for this outlook. If so, EURGBP could resume its selloff.
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